Why is Bitcoin's price still directly correlated with the stock market?

[headingnorth]

In the future I believe this will change, but for now the price is still very much tied to the stock market, which makes little sense to me.
Whenever the US stock market goes up (especially the NASDAQ), bitcoin goes up with it, and vice versa.

The tariffs are impacting imported goods into the US, they have nothing to do with bitcoin. There are no tariffs on bitcoin.
So why do many investors still treat bitcoin as if it were a tech stock? Bitcoin is a commodity like gold or oil, not a security or a stock.

Whatever happens to the stock market should have little to no impact on bitcoin, at least in theory.
The market is not rational and seems to have little understanding of what bitcoin is (it is a store of value).

Unlike publicly traded companies, bitcoin is not a good or service that relies on the volume of sales or on tariffs to determine its price.
In a more rational market bitcoin would not be so closely correlated to the stock market or treated as a speculative asset.

Whenever you are investing in a highly centralized company controlled by a group of people, there are always going to be trust issues.
So with stocks you are investing in a truly speculative asset. Because the humans controlling it are unpredictable, easily manipulated and corrupted.

But bitcoin is not subject to such trust issues, because it isn't controlled by anyone.
That is the revolution and beauty of bitcoin. The open-source code is a known quantity not subject to unpredictable human behavior and corruption.

[Ambatman]

Bitcoin price is not tied with the stock market perse
They both exist in same environment
And anything that affects the stock market
Should have a ripple effect on Bitcoin price.
Factors like political changes, geopolitical crisis, economic instability
Wouldn't just affect the stock market.
Not to mention investors sentiments towards the general market.


There are quite something's that prove it Bitcoin Halving
Cryptocurrency specific news, and regulations.
Failure of the financial system tend to improve the price of bitcoin later on
While having an indifferent or negative effect on the stock market.

[_act_]

And anything that affects the stock market
Should have a ripple effect on Bitcoin price.

Why is gold different?

I like how gold performed. It dropped when Trump was elected. Now not correlating to United States stocks.

Gold increased got to ATH when United States stocks were falling because of Trump tarrif war but gold keeps increasing.

I think the price dip in bitcoin was in response to most people finding out definitively that Jack Dorsey is Satoshi Nakamoto.

Trump increased import tarrif on cars yesterday which could the reason.

But after a long period of time, bitcoin will still increase than decrease.

[ChiBitCTy]

It is at times and isn't at others.  Also you don't specify which stock market in your title.  Sure, I know you're speaking of the US stock market as it how a sizable down day as is bitcoin , as we speak.  There are a lot of other asset classes that are also seemingly or somewhat tied to the US stock market and sometimes everything is.  You can't generalize this though as bitcoin and the US stock market do not always move hand in hand.

[betswift]

I think the price dip in bitcoin was in response to most people finding out definitively that Jack Dorsey is Satoshi Nakamoto.

Trump increased import tarrif on cars yesterday which could the reason.

But after a long period of time, bitcoin will still increase than decrease.

Agreed with your take on the tariffs.

These will keep on coming to make investors sceptical about the whole situation and not gain enough trust to push forward.

[d5000]

There are imo two or three effects in place:

1) Independent variables, which affect both Bitcoin and stocks in a similar manner. The most well known are Central Bank interest rates, being the Fed obviously the most influential but also the ECB rates sometimes have effects. The higher the interest rates, the weaker the demand for "risk assets" like tech stocks and Bitcoin.

And this is related to ....

The tariffs [...]

Tariffs could have an effect on inflation, rising U.S. consumer prices. And rising consumer prices means that the risk of a interest rate increase is higher.

2) But you are probably partly correct with this assumption:

The market is not rational and seems to have little understanding of what bitcoin is (it is a store of value).

There is uncertainty about Bitcoin's value proposition. What makes Bitcoin valuable? This question isn't fully answered, and there are several competing theories with different conclusions (Total Market Size, Social Network, before 2022 also Stock-to-flow etc.). This makes investors which are unsure about these theories' validity "hang" themselves to the stock market prices.

3) There is also perhaps a third effect, and that is that there are some primarily US Bitcoin-related public companies (MSTR, Coinbase and mining, mainly) with already a quite high representation in the tech indexes. Bitcoin's wellbeing (and price) affects these stocks and thus also the stock market. This effect should be quite small at this moment but it could increase in the future if MSTR and similar companies' business models continue to expand.

[EL MOHA]

Whatever happens to the stock market should have little to no impact on bitcoin, at least in theory.
The market is not rational and seems to have little understanding of what bitcoin is (it is a store of value).

Unlike publicly traded companies, bitcoin is not a good or service that relies on the volume of sales or on tariffs to determine its price.
In a more rational market bitcoin would not be so closely correlated to the stock market or treated as a speculative asset.

Whenever you are investing in a highly centralized company controlled by a group of people, there are always going to be trust issues.
So with stocks you are investing in a truly speculative asset. Because the humans controlling it are unpredictable, easily manipulated and corrupted.

Bitcoin Isn’t placed on tariffs to actually say the tariff crisis will affect it directly which is right but bitcoin is an investment or asset which is affected by the economic situation and Tariff happens to have its impact on the economy because a decrease and increase of the tariff actually affects the price of service.  For example if Tariff are increased which leads to increase in spending since there is no corresponding increase in income there is need for one to find alternatives to actually use to support this new increase there is always this option of people liquidating some of their holdings and the common thing most people do is they simply go for volatile assets like cryptocurrency to sell off to make ends meet and this is where even bitcoin gets hit during economic crisis. So long as bitcoin is an asset for people all economic related news will affect it badly

[headingnorth]

There are imo two or three effects in place:

1) Independent variables, which affect both Bitcoin and stocks in a similar manner. The most well known are Central Bank interest rates, being the Fed obviously the most influential but also the ECB rates sometimes have effects. The higher the interest rates, the weaker the demand for "risk assets" like tech stocks and Bitcoin.

And this is related to ....

The tariffs [...]

Tariffs could have an effect on inflation, rising U.S. consumer prices. And rising consumer prices means that the risk of a interest rate increase is higher.

2) But you are probably partly correct with this assumption:

The market is not rational and seems to have little understanding of what bitcoin is (it is a store of value).

There is uncertainty about Bitcoin's value proposition. What makes Bitcoin valuable? This question isn't fully answered, and there are several competing theories with different conclusions (Total Market Size, Social Network, before 2022 also Stock-to-flow etc.). This makes investors which are unsure about these theories' validity "hang" themselves to the stock market prices.

3) There is also perhaps a third effect, and that is that there are some primarily US Bitcoin-related public companies (MSTR, Coinbase and mining, mainly) with already a quite high representation in the tech indexes. Bitcoin's wellbeing (and price) affects these stocks and thus also the stock market. This effect should be quite small at this moment but it could increase in the future if MSTR and similar companies' business models continue to expand.

The market may not yet fully appreciate what bitcoin is, but to me the value proposition is perfectly clear.
Those who don't understand bitcoin very well may just treat it as any other risk asset to day trade or swing trade as if it were some kind of memestock.
The multitude of shitcoins on the market doesn't help either, and were probably created by Wall Street types to sow even more confusion.

But bitcoin is totally unique in that it is not exposed to the risk of human behavior. It is a protocol that cannot be changed.
In that sense bitcoin is not a risk asset, because the risk of centralized control is removed.

When you think of highly corrupt governments in the third world where annual inflation is something crazy like 100% and the money is completely worthless,
the value of bitcoin becomes crystal clear. And some of the advanced economies of the west seem to be headed down the path of hyperinflation
much more quickly than anyone could imagine.

[Odusko]

It's time the get your hands on multiple sources to be able to buy into this dip and do everything possible to take advantage of the discounted price that is presented right here and now, because this current low price benchmark won't last long before we begin to see more momentum in the market, but for stocks market, this is the wrong time and even though the global trade market is a chain, it won't drag assets like gold or Bitcoin along too much and it will not correlate most times.

[d5000]

The market may not yet fully appreciate what bitcoin is, but to me the value proposition is perfectly clear.

Unfortunately at "the market" advanced Bitcoin users (who know a bit about the value proposition) are a small minority. Even institutional investors often use outdated theories, and if they fail, they will stick to the stock prices as an indicator for Bitcoin's possible success. And in "the market", numbers matter - if the "dumb money" is the majority, they will dictate the price.

There's a certain logic in the assumption "if tech companies are successful, then also Bitcoin could be successful". Because both Bitcoin and tech companies for example may benefit from a higher Internet usage (this is another example for an independent variable). I don't agree with this logic, because Bitcoin is not a company and has a quite unique way it works (it's a DAO but you don't really own shares if you own Bitcoins), but many investors' minds seem to compare everything with companies, and thus will stick to this logic and treat Bitcoin like a tech stock.

And even those who know a bit about the value proposition are often clueless when one asks them about the "fair" price of Bitcoin. How high is it?

Is it the current value of "a bit below 100.000" as the hypothesis of efficient markets dictates? Is it much higher, e.g. if we say it has the potential to rival gold's "market cap"? Or is it lower, because we're in a bubble currently fueled mainly by MAGAs?

Yes, there is the 21 million limit, but the crucial question is the size of the total addressable market for this 21 million. And there may be completely legit altcoin competitors (XMR, for example) which may become stronger in the future, so the "scarcity" of Bitcoin depends also on the popularity of other market participants, not only on its protocol.
 

But bitcoin is totally unique in that it is not exposed to the risk of human behavior. It is a protocol that cannot be changed.
In that sense bitcoin is not a risk asset, because the risk of centralized control is removed.

There's some logic in this line of thinking. And I agree that as the Bitcoin protocol, at least the basics, are "ossified", there is less space for human intervention as in the case of stocks where the company could always decide a capital increase, for example.

But I don't agree fully. "Bitcoin" is not only the protocol. It's more than that. It's an entire ecosystem of humans, businesses, merchants, users, hodlers, traders ... And the way this ecosystem behaves indeed is dependant on human behavior.

IMO Bitcoin isn't on its full potential (I think it could be more popular and also the price could be higher) for this reason, there are too many users engaged in short term "wave riding", which makes Bitcoin more volatile and less useful for all use cases which aren't risky speculation. You still need to be able to afford a bear market.

[headingnorth]

The market may not yet fully appreciate what bitcoin is, but to me the value proposition is perfectly clear.

Unfortunately at "the market" advanced Bitcoin users (who know a bit about the value proposition) are a small minority.

One advantage centralized tech companies (including altcoins) possess is mass marketing that can generate slick advertising spreading product awareness
to a wide audience. But as a protocol that is owned by no one, bitcoin doesn't possess the dedicated marketing departments you find with conventional centralized
companies.

There's a certain logic in the assumption "if tech companies are successful, then also Bitcoin could be successful". Because both Bitcoin and tech companies for example may benefit from a higher Internet usage (this is another example for an independent variable). I don't agree with this logic, because Bitcoin is not a company and has a quite unique way it works (it's a DAO but you don't really own shares if you own Bitcoins), but many investors' minds seem to compare everything with companies, and thus will stick to this logic and treat Bitcoin like a tech stock.

The short-term, impatient mindset of most "investors" in the stock market doesn't help to understand the long-term value proposition of bitcoin.
The corporate mindset of quarterly profits is a barrier to understanding bitcoin as a long-term investment.
They are more accurately described as traders or gamblers than investors, which is especially true of those playing in the shitcoin casino.

I can't think of a single altcoin that even claims to be a store of value or long-term investment.
 

[d5000]

The short-term and impatient mindset of most "investors" (the more accurate term being traders or gamblers) in the stock market doesn't help to understand the long-term value proposition of bitcoin.

That is of course true. But you asked why Bitcoin's price is correlated with the stock market, and my answer is "because many market participants treat it like a stock"

I guess your question was more a rhetoric one, more a criticism of investors who think that way. But it's sometimes advantageous to try to understand these major market participants, so we know that not every dip means that Bitcoin has become less valuable

I can't think of a single altcoin that even claims to be a store of value or long-term investment.

Even if currently most altcoins are indeed not good to store value (I already mentioned one I consider a rare exception, but its popularity is far from Bitcoin's currently), that may become different in the future.

For example, take the following scenario: A new war about a protocol feature like Segwit emerges. The Bitcoin devs and miners select an option which isn't approved by most Bitcoin hodlers. This would make it possible that a fork becomes more popular than the "main" Bitcoin chain.

I believe the likelihood for some altcoin "flipping" Bitcoin is very low, but it is not zero, even if maxis claim that

[joniboini]

But as a protocol that is owned by no one, bitcoin doesn't possess the dedicated marketing departments you find with conventional centralized
companies.

Are you sure using a mass marketing effort will be effective to "correct" the mindset and make traders view Bitcoin differently compared to stocks? I honestly doubt that is the case. Most of them are moving based on profits. Even if you spend money on marketing to influence people not to treat Bitcoin as stock it doesn't matter if the majority of traders are ignoring that. I feel pouring money to force that change is a waste. I'd rather spend money to support people making educational content or development.

[SquirrelJulietGarden]

In the future I believe this will change, but for now the price is still very much tied to the stock market, which makes little sense to me.
Whenever the US stock market goes up (especially the NASDAQ), bitcoin goes up with it, and vice versa.

It's up and down in correlation with time but it seems with Bicoin Spot ETFs in USA and BlackRock as well as other institutional investors in this market, since January 2024, manipulations from institutional investors make Bitcoin market more tightly correlated with stock market.

Will it continue in future?
I think it will continue.

Will its correlation become stronger, more positive in future?
I think it will move forward this way.

However Bitcoin market is volatile and I believe there will be months in future, Bitcoin market will move oppositely to stock market and gold market.

Understanding Bitcoin Correlation to Stock Market & Its Impact.
https://newhedge.io/bitcoin/us-equities-correlation
https://www.theblock.co/data/crypto-markets/prices/btc-pearson-correlation-30d

[X-ray]

if i'm speaking frankly, majority of stock investor have no idea, I think the same thing happened to bitcoin because there are many stock investor who tried to invest in bitcoin as well and at macro level, they consider bitcoin just like stock, a risky asset.
so the price action might follow stock.

i'm even sure that majority of bitcoin ETF buyers were passive stock investors trying to diversify their portfolio.

tariffs, although just affecting imported goods, still can spread fear to various niche of investments, including crypto, most of people are buying and selling based on their emotion, things like this could cause worry, it's to be expected.

[pooya87]

Back in 2019 when the COVID pandemic broke out and basically destroyed global economy all markets dumped. Then some people started creating a fake correlation between bitcoin and US stock market because they were both dumping due to the same reasons (global economy crisis).

That correlation was never real but because enough people believed the fake news, in the following years some newbie weak hands started acting irrationally whenever US stock market made a move therefore solidifying that fake correlation!

In the past year or two things have been similar, we are facing another global economic crisis which is affecting all markets. Which is the reason for bitcoin not rising as fast as it should. When it is not rallying, the weak hands I mentioned in second paragraph have a bigger effect on the market with their irrational decisions based on fake news and FUD.

[AYOBA]

But bitcoin is not subject to such trust issues, because it isn't controlled by anyone.
That is the revolution and beauty of bitcoin. The open-source code is a known quantity not subject to unpredictable human behavior and corruption.

That’s the facts about Bitcoin: it’s entirely independent; it isn’t controlled by anyone or groups of people, and that’s why we can see that a lot of people like to introduce themselves into Bitcoin even in terms of investment or holdings. Because it is a reliable asset, if anyone has enough and keeps patient by holding it for a long period of time, it will bring out huge profits in the future; we should forget that the market is not stable by now; that is how the market goes at times, but in a few days later it will be better for investors.

[Dailyscript]

Bitcoin price is not tied with the stock market perse
They both exist in same environment

I concur on the price not tied together with the stock market. But you made a mistake by saying they exist in the same environment.
Bitcoin exist in a different environment where what affects the price is not controlled by any central authority. Though it can be influenced a bit by some factors. On the other hand the stock market exist separately since most asset in the stock market are full controlled by the sole owners or government of a country.

[Ambatman]

But you made a mistake by saying they exist in the same environment.
Bitcoin exist in a different environment where what affects the price is not controlled by any central authority. Though it can be influenced a bit by some factors. On the other hand the stock market exist separately since most asset in the stock market are full controlled by the sole owners or government of a country.

I still stand on it that they do.
Every thing exists in an environment and there macro economic factors that affect everything in same environment.
Bitcoin is money, an investment and an asset
Any macroeconomic factors that affects all these Would likewise affect bitcoin.

[Faisal2202]

Bitcoin price is not tied with the stock market perse
They both exist in same environment
And anything that affects the stock market
Should have a ripple effect on Bitcoin price.
Factors like political changes, geopolitical crisis, economic instability
Wouldn't just affect the stock market.
Not to mention investors sentiments towards the general market.


There are quite something's that prove it Bitcoin Halving
Cryptocurrency specific news, and regulations.
Failure of the financial system tend to improve the price of bitcoin later on
While having an indifferent or negative effect on the stock market.

You are right, the price of BTC is not tied directly but still stock market and other markets have impact on the price of BTC and other crypto sectors, it all depends on investors, if they find stock more profitable, they will sell their BTC and buy the stock and if they find crypto more profitable, they will sell their stocks and buy any crypto. Speaking of political and other fundamental factors affecting both markets, is not the same, but mostly they are, as most of us not really consider macro or microeconomic factors in crypto trading but in the stock market they do.

Failure of financial system will increase the adoption of BTC and Gold and other commodities, and that's for sure, we have seen one thing and that is if crypto is being more centralized and is connected more with financial system and fiat the more direct impact these things will have on crypto.